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Wednesday, May 21, 2014

More on Minimum Wage

Here is a pretty good article regarding the minimum wage debate titled, "Why We Should Oppose Both Skynet and Minimum Wage Increases"

Of course, I provided a pithy reply to this article:

"Sober Micro Econ analysis supports the writer's claim. Business owners will make the rational trade off between Capital or Labor-- if the cost of one of these factors rise. Business owners are seeking to get a return on the initial capital invested in the enterprise. If they are charging "market prices" for their goods, they simply can not raise prices to accommodate the increased wages that min wage increases offer. Why? The price of the good is already at equilibrium. Raising the price of the good would be totally dependent on the elasticity of the product, and if there are many competitors, the likelihood of simply raising prices to accommodate this min wage increase is not possible. Subsequently, the owner must either provide a trade off into a capital investment to replace that worker, or lay off workers, or raise the price of some goods, while off setting the price increase by lower prices for another good. In all cases, the business owner takes the brunt of this min wage increase, and it lowers his/her return on the initial capital investment."

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